On August 8, President Trump ordered the U.S. Department of Treasury to defer collecting certain payroll taxes from September 1 to December 31, 2020. Because the order is for a deferral, the unpaid taxes will need to be recouped later, unless the Department can find an avenue to eliminate the obligation to pay the taxes.
Under the order, employers will be able to defer taxes that help pay for Social Security and Medicare for individuals who receive less than $4,000 during any bi-weekly pay period (the equivalent of $104,000 per year) on a pre-tax basis.
At this time, it is still unclear whether employers will opt to release the affected payroll taxes to eligible employees as implementing changes in payroll processes and procedures is not always a quick or easy process, and the deferred taxes will need to be collected at a future date. It is also unclear if employees will have to opt in to take advantage of the tax deferral.
On August 28, the IRS issued Notice 2020-65 in an attempt to provide employers with guidance on how to implement the payroll tax deferral. Although the intent of the Memorandum is to provide employees affected by COVID-19 with temporary financial relief, the Notice leaves employers with many unanswered questions.
Employers should actively monitor upcoming guidance from the Department and determine the benefit of deferring affected taxes for eligible employees against the possibility of having to recoup those taxes later. If legislation forgiving the tax is not passed, employers will be put into the position of recouping the money from employees (all at once or in payments) or paying the amounts themselves. As a result, many payroll experts are advising employers not to act until further information is available.